RMD's not needed to live on (supplement, inherit, retiree, separate)

[mathjak107]

once you read it it you will understand why .

[Larry Siegel]

OK, I read it (https://www.kitces.com/blog/why-a-ql...md-obligation/). I forgot the ridiculously low $125,000/25% of IRA lifetime purchase limit. That means there is no problem paying the RMD starting at age 70.5 with other funds. It also means that the tax deferral opportunity is very limited for people with substantial savings.

Like most people, I don't have enough money to live to age 103 like my grandpa without a deferred annuity of some sort. I also don't expect to live that long so the purchase is insurance, not an investment.

Y'all are probably tired of my plug by now but it's all in the Financial Analysts Journal at http://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n6.4. That article ignores taxes, but the conclusions are roughly the same if you take account of taxes.

[biscuitmom]

We plan to pass our RMDs to our sons/heirs as nontaxable (for them) gifts.

[mathjak107]

Originally Posted by Larry Siegel

OK, I read it (https://www.kitces.com/blog/why-a-ql...md-obligation/). I forgot the ridiculously low $125,000/25% of IRA lifetime purchase limit. That means there is no problem paying the RMD starting at age 70.5 with other funds. It also means that the tax deferral opportunity is very limited for people with substantial savings.

Like most people, I don't have enough money to live to age 103 like my grandpa without a deferred annuity of some sort. I also don't expect to live that long so the purchase is insurance, not an investment.

Y'all are probably tired of my plug by now but it's all in the Financial Analysts Journal at http://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n6.4. That article ignores taxes, but the conclusions are roughly the same if you take account of taxes.

exactly . these have the feature of being delayed until 85 in an ira but not at the price of a true longevity policy which can be dirt cheap if it is bought for kicking in at 85 .

the qlacs are priced like they will be taken earlier .starting to draw out money at 85 leaves little chance it is worth putting money in to . just stuff it in a cd and you will do better than first starting to draw money out at 85 .

if you aren't going to draw it out at 85 don't use an ira , it makes little sense

[TuborgP]

Originally Posted by biscuitmom

We plan to pass our RMDs to our sons/heirs as nontaxable (for them) gifts.

Good for you

[AksarbeN]

My wife and I are using the RMDs for travel which we couldn't always do years ago when we were younger. Enjoy life as best one can at all ages but getting nearer the end in our 70's now we need to enjoy the extra money and have some fun. Passing it on is nice and we've made arrangements in a trust & well to do just that should it be necessary, however a little money for travel isn't going to hurt or take away from the trust & well.

[johngolf]

Originally Posted by johngolf

I have been doing the same thing. They are my rainy day fund.

ADDITION

I am happy enough with my IRA Mutual Funds that I put my RMD's in the same funds, just not as an IRA.

[StealthRabbit]

If I had RMD, (which I never will) they would:
1) Be gifted to kids
2) Be used to fund our Donor Advised Fund (Charitable Giving - the ONLY inheritance the kids are gonna get)... administering the gifting into perpetuity.

We set the fund up in our 30's and was used as a tax tool to stash appreciated assets that were essentially 'windfall'. Never expected, never needed. (We lived / retired pre age 50 just fine on a 'single earner' household / hourly (grunt) wage.)

[Larry Siegel]

Originally Posted by mathjak107

exactly . these have the feature of being delayed until 85 in an ira but not at the price of a true longevity policy which can be dirt cheap if it is bought for kicking in at 85 .

the qlacs are priced like they will be taken earlier .starting to draw out money at 85 leaves little chance it is worth putting money in to . just stuff it in a cd and you will do better than first starting to draw money out at 85 .

if you aren't going to draw it out at 85 don't use an ira , it makes little sense

OK, if you are saying that the QLACs are overpriced or have early withdrawal features that make them a bad deal compared to ordinary longevity insurance, I'd better check into that. I was assuming that they were just longevity insurance policies that could be used to reduce the IRA balance subject to RMDs and taxes.

[mathjak107]

The qlacs can be taken far earlier . The farther out in age you buy a plan to start the cheaper they are for any given amount .
you can not take a draw on a longevity policy earlier if the start date is 85 as an example . Big difference between that and taking one that has a wider range of start dates. ?

The real question with longevity annuities or qlacs is are they a smart choice?

michael kitces looked at there place in the hierarchy of retirement planning . this is a piece of the interview with christine benz i posted .


Longevity annuities suffer from this thing I call the compared-to-what problem, which is whether you think these are a good or a bad deal really depends on what you would have been using as an investment instead. Again, some alternatives just clearly lose. The number-one version of a longevity annuity is simply delaying Social Security until age 70--and in fact, it really never makes sense to buy one of these until you've delayed Social Security until 71. Delaying Social Security is kind of like a longevity annuity; it's price based in 1983 interest rates and mortality tables because that was the last time we changed the Social Security system, and those are really good payout rates by today's environment


When we actually run the math on this--and we've done some analysis and published some research on this--what we find is that the payout rates on these longevity annuities, if you do really well, say you live to 100, your payout rate is about 5% to 6%.

In other words, you would have had to buy bonds that paid you 5% or 6% over the next 30-plus years to get an equivalent of a longevity annuity payout. Now, when we look at interest rates today, 5% or 6% actually is pretty good return--very compelling. So, if you are using this as a fixed-income substitute, longevity annuities actually look really good.


When we compare to equities, though, longevity annuities unfortunately do not look quite so good.

When we look at long-term returns on equities, it's closer to 10%, even when we haircut the returns a little bit for being in a high-valuation environment. Over 30-plus years, even high valuation doesn't take that much off returns.

And when we compound out for 30 years, we find that good old equities still look better than where longevity annuities are right now. So, we can kind of do a hierarchy here:

Delaying Social Security is best, then equities look good, then longevity annuities are behind that, and then bonds are way down behind longevity annuities in the long run. So, that's how we look at stacking them up right now. " (michael kitces )


good video interview with kitces and benz from morningstar

http://www.morningstar.com/cover/vid...aspx?id=743242